Everything has been topsy turvy over the last six trading days. To put it all into perspective let us start with the beginning of the month on August 2nd, which was down rather than the old faithful up. Next, a weak employment report was followed by a terrible afternoon’s decline. The day before the Fed meeting (invariably bullish) was bearish. The move to the Fed meeting on Tuesday at 2 p.m. was also down, when again it is invariably always up.

When the Fed did not tighten, the market went down from 1277 to 1271. The next day the market had the expected rise to 1288, but then in the afternoon for some strange reason went back down to 1268. The next day news of the London arrests brought the market down to 1263 overnight only to rise to 1277 during the day, and close at 1275.5. Again, on Friday, the market looked like going back down to 1266, before closing strong in last half hour at 1272.3 with the United Nations announcement coming after the close, and the Saudi market up 2.5 % on Saturday.

The one thing that worked was do the opposite of what one should. When the news was good, sell, When the news was bad, buy. Five out of the last six days have been down. Two outside days in a row occurred on Tuesday and Wednesday. There were four lower lows in a row from Monday to Thursday, and a visit within 0.8 of that Thursday low on Friday at 1265.8.

At a time like this one can only take comfort in the thought that it is the summer, the market does not have its usual ways of making money as trading is attenuated, and as usual the unusual occurs.

One turns to the long term drift, the return from stocks of six percent a year, growing at say five percent, versus a ten year bond yield of less than five percent, and quantifies this in the Fed model for a rudder in these stormy waters.





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